The Clinton Herald, Clinton, Iowa

Opinion

March 15, 2014

Economy will continue to grow -- slowly

It has been several years that I have been writing these articles. There are some of you who do read them and on occasion I get a question about the materials. They have generally fallen into two categories: when are you going to write about something I can use (I thought I was!) and when will interest rates go up?

For savers who have been concentrated in fixed income investments and attempting to live off the interest, the past several years have left them wanting. Savers have a had a number of negatives to face with bond and CD investors unable to find sufficient yield with interest rates so low, in part due to quantitative easing.

In recent Congressional testimony, the new chair of the Federal Reserve, Janet Yellen, responded to these concerns, stating, “The rate of return savers can expect really depends on the health of the economy.”

In a number of my articles I have attempted, maybe not so successfully, to put the case that the economy is slowly recovering and growing. But you do not have to take my word of it.

Bloomberg periodically compiles a survey of economists’ expectations. Their most recent survey of 82 economists was released in early February. When asked what the percentage chance of a recession in the next 12 months is, the median estimate was 10 percent. This is not a particularly high probability of the economy slowing. So this must mean the economy will expand, demand for money and credit will increase and this will cause interest rates to move higher? Well, sort of.

These same economists are estimating that gross domestic product (GDP) will grow by 2.2 percent in the first quarter 2014 and 3.1 percent annualized by the fourth quarter. The median estimate for annualized GDP growth for all of 2014 is 2.9 percent and then moving to 3.0 percent in both 2015 and 2016. That is a .1 percent higher than their previous estimate for 2014 and the same for 2015. The median estimate for consumer spending for 2014 is 2.6 percent, flat to the previous estimate, climbing to 2.9 percent for both 2015 and 2016.

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